Interim Rule Implements Ban on Contractors Using Covered Telecommunications Products and Services from Certain China-Based Companies

On July 10, 2020, the FAR Council issued a prepublication version of  an interim rule implementing Section 889(a)(1)(B) of the FY 2019 National Defense Authorization Act. The interim rule prohibits federal executive agencies from contracting with entities that use covered telecommunications products and services from certain Chinese companies like Huawei Technologies Company or ZTE Corporation, including their affiliates and subsidiaries. The interim rule expands upon previous restrictions that went into effect last year and is expected to have a significant impact on federal government contractors as they attempt to comply with reporting requirements in the midst of a global pandemic.

Unless Congress delays its implementation, the interim rule will go into effect on August 13, 2020, and federal executive agencies will not be permitted to enter into, extend, or renew a contract with a contractor that uses covered telecommunications equipment as (1) a substantial or essential component of any system, or (2) as critical technology as part of any system. The interim rule also extends to a contractor’s use of services that in turn uses covered telecommunications equipment in the same manner. This prohibition applies even if the use of covered telecommunications equipment or services is unrelated to performance of a federal government contract.

The interim rule will apply to all federal prime contractors regardless of the contract type or size. This includes contracts for commercial items and contracts below the simplified acquisition and micro-purchase thresholds. The interim rule will not apply to subcontractors or to a prime contractor’s affiliates, parents, or subsidiaries but it does require prime contractors to certify that they do not use any equipment, system, or service that itself uses a banned technology. The interim rule further provides that the FAR Council is considering whether to expand the scope of Section 889(a)(1)(B) to a prime contractor’s domestic affiliates, parents, and subsidiaries with such restrictions going into effect, if at all, no later than August 13, 2021.

To ensure compliance, solicitations issued on or after August 13, 2020 will require contractors to represent, after conducting a reasonable inquiry, whether or not they use covered telecommunications equipment or services. Contractors will be required to make the same representation for solicitations issued before August 13, 2020 if the resulting contract will be awarded after August 13, 2020. Contractors will be able to complete the representation on a contract-by-contract basis, or on an annual basis in the System for Award Management if the representation is uniformly negative. The interim rule does include several exceptions and allows the head of an agency to grant a one-time waiver to a contractor if certain requirements are met. Any waiver that is granted by the head of an agency must expire by August 13, 2022.

In light of the breadth of Section 889(a)(1)(B) and considering August 13, 2020 is rapidly approaching, we recommend government contractors:

1. Review Section 889(a)(1)(B) as required by its express terms and familiarize themselves with the provision and its requirements. Subcontractors are also required to review Section 889(a)(1)(B) and learn about the provision and its requirements;
2. Conduct a formal assessment to identify covered telecommunications equipment that are substantial and essential components of any system or critical technology of any system used in the performance of a federal contract;
3. Conduct a reasonable inquiry into subcontractor or supplier relationships for which the prime contractor has a federal contract and uses the subcontractor’s or supplier’s covered telecommunications equipment or services as a substantial or essential component of any system or service;
4. Prepare a policy acknowledging the requirements of Section 889(a)(1)(B) and the specific steps taken and/or needed to comply with Section 889(a)(1)(B);
5. Require subcontractors and suppliers to certify in writing that they have (1) reviewed their operations to determine if they will be impacted by Section 889(a)(1)(B), and (2) if impacted, provide the details of the impact to the contractor and any prospective remedial measures taken to minimize the impact.

The Ward & Berry team will continue to monitor developments surrounding the interim rule and its potential impact on federal government contractors. If you have any questions regarding the interim rule or would like to futher discuss compliance matters please do not hesitate to contact us.